Edited version of your private ruling

Authorisation Number: 1012583794041

Ruling

Subject: GST and residential premises

Question 1

Is the sale of the property at the Property a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

You purchased the Property and built a house on it. You lived on the Property for many years. The Property was then zoned 'Industrial' and you leased it out for some years under a commercial lease, with the current lease expiring after settlement of the sale.

The sale settled recently, the option to sell the Property as a going concern was not utilised. You advised that the Property has the characteristics of residential premises such as a bathroom and kitchen etc. The yard of the house has been adapted by the tenant for a commercial use.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

Reasons for decision

Summary

The sale of the Property is not a taxable supply pursuant to section 9-5 of the GST Act. The sale is an input taxed supply of residential premises under section 40-65 of the GST Act.

Detailed reasoning

You make a taxable supply where you satisfy the requirements of section 9-5 of the (GST Act), which states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that

you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free

or *input taxed.

(*Denotes a term defined in section 195-1 of the GST Act)

You meet the requirements of paragraphs 9-5(a), 9-5(b), 9-5(C) and 9-5(d) of the GST Act. This is because:

· you made the supply of the Property for consideration;

· the Property was supplied in the course or furtherance of an enterprise that you carry on;

· the Property is in Australia; and

· you are registered for GST.

We will now consider whether the Property could have been supplied GST-free or input taxed. Given that the Property was subject to a lease at the time of supply, there may have been scope for you and the purchaser to enter into arrangements to supply the Property GST-free as a going concern. We understand that the GST-free going concern provisions were not entertained at the time of supply.

A supply of residential premises is input taxed to the extent that the premises are not either new or commercial residential premises and are to be used predominantly for residential accommodation. In the first instance we must consider whether the Property is residential premises and then consider whether either of the exceptions applies.

The Goods and Services Tax Ruling GSTR 2012/5 notes that the requirement in the GST law that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation.

The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office).

Conversely, premises that do not display physical characteristics demonstrating that they are suitable for, and capable of, being occupied as a residence or for residential accommodation are not residential premises to be used predominantly for residential accommodation, even if the premises are actually occupied as a residence or for residential accommodation.

You have stated that the house on the Property still has the characteristics of residential premises despite being used as an office. The house retains the bathing and cooking areas, etc. that distinguish as residential premises. We consider that the house has the characteristics of residential premises.

As to the land that would normally be the house's yard, there is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building. The use of the land is not a determining factor in deciding if the land forms part of the residential premises.

Therefore, the fact that the yard is currently given over to a commercial use does not exclude it from being residential premises. Further, there is no requirement in the GST law for a house's yard to be a well-tended garden, etc.; it is possible that the yard of residential premises is asphalted, tarred or concreted. Therefore we consider that the Property meets the requirements of residential premises.

New residential premises

New residential premises are defined as residential premises that:

(a) have not been previously sold as residential premises (other than commercial residential premises) and have not recently been the subject of a long term lease; or

(b) have been created through substantial renovations of a building (subject to (a) above); or

(c) have been built, or contain a building that has been built, to replace demolished premises on the same land (subject to (a) above).

However, regardless of paragraph (a) above, if the premises were used as residential premises prior to 2 December 1998, they are not new residential premises. In the case of the Property, it was used as residential premises prior to this date; therefore this exclusion does not apply.

Commercial residential premises

The definition of commercial residential premises includes:

· a hotel, motel, inn, hostel or boarding house;

· premises used to provide accommodation in connection with a school;

· a ship that is mainly let out on hire in the ordinary course of a business of letting ships out on hire;

· a ship that is mainly used for entertainment or transport in the ordinary course of a business of providing ships for entertainment or transport;

· a marina at which one or more of the berths are occupied, or are to be occupied, by ships used as residences;

· a caravan park or a camping ground; or

· anything similar to residential premises described above.

The Property does not meet any of these requirements; therefore this exclusion does not apply.

It follows that we consider that the supply of the Property is the input taxed supply of residential premises.

Input taxed supplies

If a supply is input taxed then:

· no GST is payable on the supply; and

· there is no entitlement to an input taxed credit for anything acquired or imported to make the supply.